Economic Update: Week of April 6, 2026

Growth

The U.S. economy grew by a downwardly revised 0.7% saar in 4Q25. A very sharp 17% annualized decline in federal government spending was the main culprit for the weak report, and final sales to private domestic purchasers rose by 1.9%. Consumer spending was revised lower to 2% growth, down from 3.5% in 3Q25. Fixed investment rose by a downwardly revised 1.6% as business investment on structures was weaker than initially thought. On the other hand, spending on equipment and intellectual property showed solid gains. Fiscal stimulus should lead to stronger growth in 2Q and 3Q26.

NEW THIS WEEK

Jobs

The March Jobs report came in stronger than expected, with the U.S. economy adding 178k jobs. That said, gains in the prior two months were revised down by 7k, bringing the three-month moving average of payroll gains to 68k. In the details, both goods and services sectors added jobs, with construction (+26k) leading the charge in the former and heath care and social assistance (+90k) leading the latter. Elsewhere, the unemployment rate fell to 4.3% due to a 396k decline in the labor force as the labor force participation rate ticked down to 61.9%. Wage growth eased to 0.2% m/m and 3.5% y/y, suggesting very little additional inflationary pressures coming from the labor market. Overall, this report shows a labor market that remains tight, allowing the Fed to remain on hold for most, if not all, of 2026.

Profits

S&P 500 EPS grew a strong 13.3% y/y in 4Q25, 6 percentage points above the December estimate. The three main sources of EPS growth, sales, margins and shares, contributed 8.2, 5.9 and -0.9 percentage points, respectively. From a sector perspective, tech did the heavy lifting, driving 61% of the index’s y/y EPS growth. Financials and industrials also saw strong earnings growth of 27.8% and 7.7%, respectively. On the other hand, the consumer and health care sectors are struggling as rising costs hurt profitability. The outlook for 2026 earnings growth is similarly strong with continued gains in tech and cyclical support for the rest of the index.

Inflation

The February CPI report had some favorable developments, but it reflects a different world than the one we are in today. The conflict in the Middle East has only added to upside inflation risks. Headline and core inflation were up 2.4% and 2.5% y/y, respectively, in February, matching expectations. In the details, it looks like energy and food inflation firmed, even ahead of the conflict. Core goods prices rose a tepid 0.1% m/m as used autos continued to decline while core services inflation slowed as shelter remained soft. However, some of this softness should fade alongside the impacts of the government shutdown come April. With upside inflation risks from fiscal stimulus, delayed tariff pass-through and now this conflict, inflation could bounce to 3.5% in mid-2026 before resuming its gradual decline back to 2%.

Rates

At the March FOMC meeting, the Federal Reserve held the federal funds rate steady at 3.50-3.75% and maintained its outlook for one rate cut this year. Governor Miran dissented in favor of a 0.25% cut. Both the statement and Chairman Powell’s press conference made mention that the impact of developments in the Middle East on the U.S. economy remains highly uncertain but likely shifts the outlook for policy rates in a hawkish direction. This was reflected in the Summary of Economic Projections, with growth and inflation revised higher for this year and next, while unemployment forecasts were left unchanged. In our view, the Fed should be able to deliver at least one rate cut later this year, but uncertainty remains.

Risks

• Delayed tariff pass-through and fiscal stimulus could put upward pressure on inflation.
• A divided Federal Reserve could deliver fewer rate cuts than markets currently expect.
• An extended conflict in the Middle East could weigh on growth and pressure inflation higher.

Investment Themes

• Solid fundamentals should allow U.S. markets to continue to grind higher.
• Fiscal stimulus, dollar weakness and regional catalysts should support strong international performance.
• Private markets can offer investors more ways to access the AI theme.

This weekly update provides a snapshot of changes in the economy and markets and their implications for investors.

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Originally Posted April 6, 2026 – Economic Update

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